Photo by cursedthing
We saw the beginnings with the Battle of Wisconsin. The one place were unions were growing robustly was in the public sector, surpassing the private sector for the first time in 2009. But then 2010 happened.
Chrysler
In the July 4 issue of National Review we have this follow-up on the stimulus.
“In a speech at Chrysler’s Toledo plant celebrating his administration’s ‘successful’ bailout of the company, the president invoked the multiplier effect by pointing out that saving the plant had helped Chet’s Restaurant, a Toledo institution since the 1920s, to stay open. A few days later, Chet’s announced that it was closing; the owner laid equal blame on the current hard times and Ohio’s 2006 enactment of a smoking ban.”
More than two years after the official end of the recession our economy limps along. We are overtaxed, overregulated by busybody governments at all levels, that believe their superior intellect and beliefs should be impressed on the drone populace for their own good. What was that phrase? “Give me liberty…”
That’s my opinion; I’d like to know yours. Please comment below.
The Obama administration, having stepped in it with both feet to protect their union backers rather than let two of the three U.S. automobile companies go into bankruptcy, are now weighing the sale of the stock owned by us, in an Initial Public Offering (IPO). Their plans are to scale back the offering to prop up the price that they might be able to get in the market so that they can ultimately get most of the taxpayer money they spent, back.
“While both G.M. and the Treasury still hope to reduce the government’s stake in the company to less than 50 percent and rid the company of its Government Motors nickname, that goal may not be met, one of the people said,” according to the New York Times. In saying that, auto analysts are increasingly projecting that the government could get most or all of its remaining $43 billion investment, but it will takes years to accomplish. Uh-oh.
Our once proud automobile industry
The government institutes regulations such as CAFE that force the automobile companies to build many cars they can’t sell at a profit for each car they can. The unions negotiate contracts that pay people who have been let go 90% of their salary and give retirees extremely generous packages. The automobile companies stagger under this load to the brink of bankruptcy and what happens? The CEO of GM gets booted out and the government and the unions end up owning the car companies. In the case of Chrysler the UAW will end up owning 55% of the company if the government’s plan is approved.
Had the automobile companies gone into bankruptcy before the bailout, as this author advocated, the union contracts could have been voided and a new workable deal struck. But the government said bankruptcy was bad. The government said we had to give the car companies billions of our tax dollars. The government said, if you automobiles companies don’t accept our deal, you will be forced into bankruptcy. Huh?
So tell us again, Mr. Obama, how this is not socialism.
The battle lines are being drawn and the factions are jockeying for position.
- The UAW is standing firm that they are not contributing anything more (but the taxpayers should)
- Rick Wagoner, CEO of GM, says they are not even planning for bankruptcy (but recently news has come out that the board is now considering it, if they can’t get the taxpayers to step up)
- Congress wants a plan from the automakers before showing the money (they want to make sure that the auto companies adopt a green agenda and build a lot more cars that they can’t sell at a profit, and palm it off on the taxpayers)
- Some pundits are claiming that 3 million jobs will be lost if we don’t bail them out (but fail to finish the thought and tell us who is going to build the cars that the market demands but GM, Ford, and Chrysler won’t be building if they completely shut down as some predict)
The louder the hue and cry against bankruptcy and the need to empty my wallet, the more confident I feel that bankruptcy is the right thing to do. Without fundamental management change, union change, and structural change, no amount of taxpayer funding and bailout upon bailout, will enable the Big Three to crawl off their death bed and once again be giants of American Industry. Bankruptcy is bitter medicine, but without wrenching change that bankruptcy protection can provide, with a trustee making hard decisions and getting concessions from all sides, this patient on life support will die.
A Sad but True Parody
I came across this excellent joke on Evolving Excellence that was making the rounds a few years ago, but seems sadly relevant today. As I said it is a few years old, so don’t look too closely at the financials:
A Modern Parable.
A Japanese company ( Toyota ) and an American company (Ford Motors) decided to have a canoe race on the Missouri River Both teams practiced long and hard to reach their peak performance before the race.
On the big day, the Japanese won by a mile.
The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.
Their conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 7 people steering and 2 people rowing.
Feeling a deeper study was in order; American management hired a consulting company and paid them a large amount of money for a second opinion.
They advised, of course, that too many people were steering the boat, while not enough people were rowing.
Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team’s management structure was totally reorganized to 4 steering supervisors, 2 area steering superintendents and 1 assistant superintendent steering manager.
They also implemented a new performance system that would give the 2 people rowing the boat greater incentive to work harder. It was called the ‘Rowing Team Quality First Program,’ with meetings, dinners and free pens for the rowers. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses. The pension program was trimmed to ‘equal the competition’ and some of the resultant savings were channeled into morale boosting programs and teamwork posters.
The next year the Japanese won by two miles.
Humiliated, the American management laid-off one rower, halted development of a new canoe, sold all the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses.
The next year, try as he might, the lone designated rower was unable to even finish the race (having no paddles,) so he was laid off for unacceptable performance, all canoe equipment was sold and the next year’s racing team was out-sourced to India.
Sadly, the End.
Here’s something else to think about: Ford has spent the last thirty years moving all its factories out of the US , claiming they can’t make money paying American wages. TOYOTA has spent the last thirty years building more than a dozen plants inside the US. The last quarter’s results:
TOYOTA makes 4 billion in profits while Ford racked up 9 billion in losses.
Ford folks are still scratching their heads, and collecting bonuses…
IF THIS WEREN’T SO TRUE IT MIGHT BE FUNNY
It will be interesting to see when the auto executives go back to Washington, will they fly in three separate corporate jets? will they “jetpool”? will they fly first class? will they fly coach? or will they drive one of their excellent products to ask for a bailout? How much trunk space do you need to carry $25 billion? Remember that’s 25,000 million.
A Modest Proposal
About every three years when the labor contracts between the unions and the auto companies come up for renewal, a target company, Ford, GM or Chrysler is typically chosen. The purpose is to threaten a strike on that company while allowing UAW members to keep working at the other two (and still pay union dues), rather than striking against all three.
Here’s my proposal. Since GM seems to be in the worst shape, they should go Chapter 11 right away. Let Ford and Chrysler stand back and watch the result. If it works and GM successfully restructures, you can bet Ford and Chrysler will be scrambling to go Chapter 11 to get their houses in order. If it is a bust, then one of three things can happen. One, they can learn what GM did wrong in the process and perhaps craft a better and maybe even “prepackaged” Chapter 11 filing. Two, they can go back to Washington and try again, but at least they would have a stronger case for why bankruptcy is a bad idea. Three, they can wake up and get all the parties together including management, unions, retirees, suppliers, banks, bondholders, local governments, Congress and make the changes voluntarily that would otherwise be made under a bankruptcy.
What do you think?
I got the phone call around 7:30AM. It was my wife and her voice was shaking, choking back tears. She said she was in an accident and that the truck was totaled. Totaled? I thought to myself, my God, what kind of accident could have totaled a 2 ½ ton, hulking Ford Excursion SUV? Before I could ask the next question, the one I didn’t want to ask, she said, “The girls and I are alright, just some cuts and bruises.” I was able to start breathing again. She began to apologize for the SUV and I gently cut her off. “I don’t care about the truck, as long as you and the girls are okay.” The girls were my two daughters.
I got the location of the accident, briefly told the lead guy in my shop the situation, light on the details which I didn’t have anyway, and jumped in my truck to find them. As I approached the accident scene, I saw an ambulance, with siren blaring and lights flashing, going the opposite way. I called my wife’s cell phone and when I got her I asked, “Did you just pass me in the ambulance?” She said, “Yes, we’re headed to the hospital to be checked out.” So I made a U-Turn to go meet them in the emergency room.
The Accident
What had happened was that my wife was crossing an intersection when another car blew through the red light. According to one witness it looked like he was going 60 mph, according to another it looked like he was going 100 mph. They said the nearly 19′ long, 2 ½ ton vehicle with a massive V-10 engine that my wife was driving was lifted up in the air, turned 180 degrees and landed on its side. My wife had to kick out the windshield to crawl out and guide our daughters out behind her to safety. Thankfully it didn’t catch fire.
Why the other driver was driving the way he was we never found out. He was pronounced dead at the scene. He was driving a Kia, a small Korean import, and before impact, I’m sure he was getting great gas mileage. He went from leaving a small carbon footprint to leaving no footprints at all.
My wife was exonerated from any responsibility for the accident. She and my daughters were completely innocent. Had Ford been required only to build highly fuel efficient econoboxes, half my family would have been killed that morning. In fact, the driver who was behind my wife said that if she had not been there, he was sure he would be dead, as it would have been him that was hit by the speeding car in her place.
Freedom to Choose
They are alive because I have the liberty, so far, to buy any vehicle that I choose and can afford. The choices are many and I have made many choices through my life. That is primarily because the government has not yet taken away that liberty and demanded what types of vehicles can be built and by whom.
My first car was a Toyota Celica, which I purchased just after graduating from college. It was well made, well equipped, and although a little expensive at $4,700 brand new, I thought it was worth it. That car served me well for 105,000 miles. When it was time for a replacement I bought a Plymouth Sapporo and I really liked it. Unfortunately, someone liked it as much and it was stolen when it had just 9,000 miles on it. It was a Chrysler Corporation car, but under the hood it was Japanese. Still living in the Bronx, I decided to buy something functional but not too attractive. I remember my friend’s rationale for buying a Subaru while living in the city. None of the parts fit in a gypsy cab. My next vehicle was a Toyota Corolla.
Cars for a Growing Family
When my wife and I married in 1986 she brought to the marriage her Ford Mustang. My Corolla was starting to get tired and my wife was pregnant, so it was time to get a new vehicle. I bought a Ford Probe, with front wheel drive and turbocharged. It was hard to decide if it was American or Japanese. It was sold by Ford, built in the United States by Mazda which is a Japanese company, but Ford owned 25% of Mazda at the time. It made for interesting conversation, but not worth losing any sleep over.
After our second child, the Probe and the Mustang were getting a little cramped. So we said goodbye to the Mustang and hello to a Volvo 740 Turbo Wagon. This was my wife’s dream car, owing somewhat to her Swedish heritage.
Things were going well for us and it was time to replace the Probe. I leased a BMW M Roadster and had more fun behind the wheel of a car than I can remember before or since. We both thoroughly enjoyed tooling down the road with the top down, turning heads as we went. Life was good.
My wife and I had two more children and as they grew, the jump seat in the back of the Volvo was less than optimal. In the winter the heat never seemed to reach back there and in the summer the kids in the back felt like a couple of tomato plants in a hothouse. So it was time for our next vehicle, which for the first time I bought completely on the Internet. It was a Ford Expedition. I had seating for eight and room for some cargo as well, and heat and air conditioning all the way to the back. The kids could each sit comfortably without bumping into each other and to reach out and smack someone next to them took some effort. That vehicle served us well for a couple of years and then as they grew, our needs grew and when it was time for the next move, we got the Excursion, bigger, they didn’t come.
Meanwhile things became a little more challenging for us. When the BMW’s lease was up, back it went. I took over the Volvo for a while until I started a new construction related business and then I took over my father-in-law’s Chevy pick-up truck which he left for my son when he passed away. After a year when the business got more established I put the Chevy aside for my son and the company bought a Ford F-350 Super Duty, dual wheel pickup truck with a diesel engine, which I still drive.
The Nest Starts to Empty
Then came the accident. As soon as we got the insurance money for our totaled vehicle we immediately went out and bought another Excursion, with safety the foremost reason. Ford wasn’t making them anymore so we bought a used one. I wanted my family protected.
When my son moved out freeing up a seat on the “bus” and my wife started selling real estate and gas prices started to climb, we reevaluated the Excursion. The Volvo was gone, and at twelve mpg and my wife driving a lot more, it didn’t make sense. With five of us at home, at worst we could all fit into the pickup truck with its crew cab. So she bought a Volkswagon EOS. The savings on gas would make up for any differences in payments on it. She now had her own convertible and was very happy.
About six months later, my older daughter got her license and wanted a car. She didn’t have much money for purchasing it or for gas so she needed something economical. Her choice, a Volkswagon Jetta.
Individual Liberty or Government Diktat
What’s the point of this stroll down vehicular memory lane? To demonstrate that with liberty we have a great many choices. We also have different needs at different times in our lives. Through a free market I was able to select from a number of vehicles from different manufacturers, from different countries, to find what fit our needs. Those companies decided what to build to suit the market. The cars that I eventually chose, though not done conscientiously at the time, were from each of those manufacturer’s strengths, not their weaknesses. I did not choose an economical car, when I needed one, from one of the Big Three. We did however, choose some of their sporty models (Mustang, Probe) and their trucks (Excursion, Expedition, F-350, Silverado).
The market should tell them what cars to build and build at a profit. Government should not require them to build six or eight cars that they have to sell at a loss for each vehicle they can sell at a profit, to meet some government mandate such as CAFE standards. As the market causes fuel prices to rise, the market will react with increased demand for more fuel efficient cars. We should be able to choose when that works best for us. If we have a distance to commute, we will more inclined to factor fuel efficiency into the equation. However, if we want to travel in luxury two miles to our favorite restaurant, who cares if the car that gets us there only gets 8 mpg? Many families have more than one car for that very reason. Who is some government bureaucrat to tell us what we can choose among?
This Thanksgiving I can sit down with my family, and be thankful that I had that choice, and I can hug each one of them and pray it stays that way.
It’s hard to read the news about the auto industry and not clench your fists at the outrage. GM and to a lesser extent, Ford and Chrysler, are asking the American taxpayer to bail them out, but what is their position?
- The unions say they are not going to negotiate anything to help the situation
- The CEO of GM says that they are not filing for Chapter 11 and not preparing to file, despite that they may run out of cash by the end of December. Not even as a contingency, Mr. Wagoner?
- Wagoner refused to consider resigning, even if it would help them get aid
- GM’s board is supportive of Wagoner
This company negotiated an agreement with its union that pays them almost full pay if they are laid off. Let me get this straight. You lay people off, as painful as that may be, to cut costs. GM negotiates an agreement that keeps the costs, but sends the people away. From their perspective, it’s free labor, they pay for it either way so put them to work! But no, I’m sure there are union restrictions about what you can put them to work doing.
Remember the Dot.com Bubble?
In 2000 we saw the Dot.com bubble. What was the fallout? Millions were lost on Wall Street. Companies by the bushel basket went out of business. Thousands were thrown out of work. How much did taxpayers cough up to bail them out? Nothing. The market dealt with it. The strong companies re-grouped, the weak fell by the wayside. John Chambers, CEO of Cisco Systems, changed his own salary to $1 per year until he righted his ship. Today Cisco has $26 billion in the bank and Chambers is still at the helm. Nice work, John. It wasn’t done with arrogance and going hat in hand to Washington looking for a hand out.
Deja Vu
In the 1970s and 1980s in the UK, British Leyland, maker of the Triumph, MG, Rover, Jaguar, Austin and five others, was in need of a bailout to keep going. The British government complied eventually pumping in $16.5 billion in taxpayer money to the company. It limped along for another few years and then went out of business. It sold its Jaguar and Land Rover brands to Ford, which then poured $10 billion into Jaguar. It recently sold both brands to Tata of India, getting back about half of what it paid for the brands.
Did the British economy go under? Is the British military without tanks? Let’s not forget that the Jeep was made by American Motors. Where is American Motors today? A company named AM General makes the military Hummer. Guess what the “AM” stands for? GM, Ford and Chrysler combined made about 17 million vehicles in 2007. Does anyone think this demand will vanish if GM, Ford and Chrysler vanish? Of course not. Either GM, Ford, and Chrysler will re-make themselves, new companies will emerge, or U.S. based foreign companies will grow to take up the slack. The jobs will move around. The demand is there, the supply will emerge to satisfy it.
The Way Out
The way out of this mess is to go Chapter 11, reorganize, renegotiate onerous labor contracts, sell off properties no longer needed but tied up in commitments to bonds that were sold to attract a factory, etc. The government should do their part and dump the CAFE standards. Americans will still want high mileage cars and companies will build them. It may not be GM, Ford and Chrysler who build them, but if they trim down, maybe they will. But they do make a profit on their premium models and light trucks. Let them.
But keep your hand out of my wallet.
I was having lunch with a colleague the other day and the conversation turned to the economy. He spoke of some recent analysis of the number of jobs that would be lost if the Big Three failed. He recounted not just the employees of the auto companies themselves, but the employees of their suppliers, advertising firms that produce car ads, and on and on. His final tally was well over 1 million jobs lost. He concluded by saying it would make the current financial crisis a walk in the park.
Getting enough exercise?
Does that mean that we are all going to start walking? Not that that would be a bad idea, we could all stand to lose some pounds, but for someone who has a 23 mile one-way commute with no option for mass transit, it’s just not going to happen. So what do we do? Well, one of several scenarios is going to happen.
Scenario 1: The Big Three Close Their Doors
If this scenario came about, what would we do? We would go buy Toyotas, Nissans, Hondas, Volkswagens, etc. Those companies would have to scale up to fill the void caused by the Big Three closing their doors. That demand would need people. So a significant number, but by no means all, of the laid off workers from Detroit would move to North Carolina, Alabama, and other points south, and join these auto companies at their U.S. plants.
Likewise the suppliers would form new alliances to supply these car companies, as would all the other ancillary companies that currently support Detroit. Would jobs be lost? Yes. Would it be anywhere near the number of jobs my friend projected? No.
Scenario 2: The Big Three Reinvent Themselves
The liberty of the car companies to reinvent themselves is constrained by government regulations. Surprise! If the Big Three have any hope of reinventing themselves, they have to have the freedom to do so. Start by eliminating the CAFE standards. CAFE, which stands for Corporate Average Fuel Economy, is the mileage standards dictated by the government that the auto companies must comply with or face heavy fines, draining more money from the Big Three’s coffers. So for every car that the Big Three build that may get 20 mpg, they may have to build and sell perhaps 3 that get 30 mpg, in order to meet the standard. But what if they can make money on the 20 mpg car, but they lose money on every 30 mpg model? What if the reason they can’t make money is because of their labor costs per vehicle, their pension costs per vehicle, their health care costs per vehicle, when added up are too high compared to their foreign competitors. They are basically forced by the government to make an unprofitable product.
Why not abandon the CAFE standards? Let Detroit build the cars and trucks that they can make at a profit. Let the foreign manufactures make cars that they can make at a profit, including high mileage cars. Let the American people have the freedom to choose which they want. As the price of gasoline climbs as it did, and will again, people will want to buy high mileage cars, hybrids, electric cars, but they will also want to buy SUVs, luxury cars and light trucks. Why does a particular manufacturer have to produce all kinds? When has government ever made the right call on what products to produce? (Hint: think of all the five-year plans and Great Leap Forwards from the Communist world).
Scenario 3: The Government Bails Out the Big Three
The government prints up a bundle of cash, $25 billion or more, gives it to the auto companies and hands the IOU to you and me. The new Democratic Congress and Administration will toe the line for their backers in the environmental movement and demand higher CAFE standards for the auto companies in the interest of addressing: our dependence on foreign oil; green house gases; and helping consumers. This will put increased pressure on the Big Three to make more unprofitable products and we will find ourselves back in the same place a few years hence. More liberties will be vaporized as the government appoints a czar to oversee the auto companies to be sure they are building the right products, that management is not getting paid too much money, and well let’s face it, they would basically be nationalizing the auto companies. Management talent would dry up, and socialism would make greater inroads into the U.S. economy.
The Best Scenario
The Big Three file for bankruptcy, if that is what they need to do. The stockholders would probably be wiped out, the management team would be replaced, and this will let them re-negotiate their labor agreements. Congress and the new Administration realize that people will want to purchase cars with higher mileage as the price of gas climbs regardless of any government requirement. There is no justifiable reason that any particular auto company has to build a particular car because the government says so. Achieving this state of enlightenment, Congress repeals the CAFE standards. With the liberty to manage the company to make a profit rather than meet the constraints of a bevy of interest groups, a more energized management team takes the reins, and returns the Big Three to competitiveness.
Drawing a line in the Sand
If we don’t take a stand here and now, every company that wants a cash cushion will be working the halls of Congress to get their hands on your money. There is not enough to go around. In addition, many of the problems we are facing were created by government initiatives. The mortgage mess was not the result of not enough regulation but by government programs that compelled lenders to give loans to people who could not afford them. Detroit’s problems are a result of CAFE standards and onerous union contracts. Since government created many of these problems why do we think that government knows how to fix them? What we need to do is tell them to back off and let the free market work.
